Thanks to the benefit of hindsight, the disastrous spell of the Covid-19 crisis represented the best time for airline stocks to buy on the dip. Obviously, that season has long passed. However, that doesn’t mean that the concept of acquiring temporarily undervalued air travel investments is no longer relevant. On the contrary, we could be sitting on a similar opportunity.
Yes, the phenomenon of revenge travel – or the acute need to leave the home and enjoy much-needed experiences – has faded. Nevertheless, in its place is the concept of travel prioritization. Since the events of the pandemic, households have set aside their discretionary budgets for vacations and other fun outings. That’s the case even with significant pressures such as inflation and high borrowing costs.
It’s not entirely clear what the core catalyst is. But maybe, just maybe, people are realizing that life is short. With that in mind, below are airline stocks to buy on the dip.
Delta Air Lines (DAL)
One of the victims of the software update outage that impacted myriad sectors not too long ago, Delta Air Lines (NYSE:DAL) noted that the incident cost the company $500 million. As a result, it believes it has no choice but to sue the entity it believes responsible for the carnage, cybersecurity specialist CrowdStrike (NASDAQ:CRWD). In turn, CrowdStrike is stating that Delta could have mitigated the situation.
I don’t want to get into the back-and-forth. For investors, the bottom line is that DAL stock suffered conspicuously, losing over 9% of value in the trailing month. That’s nothing to scoff at because up until mid-May, Delta was flying high. Suddenly, the narrative has become less appealing. Still, the volatility could be an opportunity to pick up shares on the cheap.
Travel demand – specifically air travel demand – is robust. At the moment, DAL trades at 0.42X sales, which is a bit warm compared to the sector’s average multiple of 0.33X. Still, anticipated revenue growth of 5% to $57.4 billion in fiscal 2024 and 5.5% to $60.53 billion in the following year should make the projected valuation more attractive.
Southwest Airlines (LUV)
A specialist in the discount segment of the business, Southwest Airlines (NYSE:LUV) could be one of the more intriguing airline stocks to buy on the dip. In the trailing month, LUV lost more than 8% of market value. Since the start of the year, it’s down about 11%. Still, it’s not just about the red ink that makes Southwest a possible upside opportunity.
Primarily, people want to enjoy new experiences. While the concept of revenge travel has faded, folks are still setting aside portions of their budget for vacations. The difference between today and the immediate post-pandemic paradigm is that households aren’t willing to pay whatever cost. Instead, due to outside economic pressures, they need to be more reasonable with their expenditures.
That suits Southwest just fine. Notably, in the past five sessions, LUV stock has been on a recovery trek, gaining over 5%. Sure, shares aren’t exactly objectively undervalued relative to the industry, trading hands at 0.6X sales. However, in the past year, the multiple averaged 0.71X.
What’s more, analysts are anticipating slow-and-steady growth. Fiscal 2024 sales may hit $26.97 billion, up 3.4% while fiscal 2025 revenue may land at $28.74 billion. Thus, LUV is one of the airline stocks to buy on the dip.
United Airlines (UAL)
One of the biggest enterprises in the field, United Airlines (NASDAQ:UAL) offers a range of flights, both domestic and international. The latter could be key to UAL’s success, making it an interesting target for airline stocks to buy on the dip. Essentially, American tourists stand on enviable ground thanks to the relative strength of the dollar.
One of the advantages that U.S. tourists have is that their dollars will travel far, depending on where they go. That only incentivizes a closer look at companies like United. It’s worth pointing out that the company has been a strong performer. In the trailing year since the second quarter, United posted an average earnings per share of $2.41. This figure beat out the consensus view of $2.10.
Not only that, UAL stock is trading for only 0.25X sales. That’s undervalued relative to the airliner industry. In addition, the average metric over the past year stood at 0.28X.
Moving forward, analysts are looking at revenue of $56.83 billion, up 5.8% from the prior year. And fiscal 2025 could see sales at $60.45 billion. Therefore, the attractive valuation could be even more so.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
